The distribution property sector in Wales could buck the current slowdown in the market, says Rhys Morgan, head of the industrial team at Knight Frank, Cardiff

The distribution property sector in Wales could buck the current slowdown in the market, says Rhys Morgan, head of the industrial team at Knight Frank, Cardiff

DURING the past six months, demand has reduced considerably due to lower consumer spending and events centred on the Middle East, with the sector consequently experiencing a period of restructuring and uncertainty.

Third party distribution companies that have recently created significant demand within the market are experiencing long delays or even cancellations of proposed projects - and Wales has not been immune to these trends.

However, on a UK-wide basis, land and labour within the traditional "golden triangle" for distribution occupation within the Midlands are becoming ever more scarce and planning permission more difficult to secure.

This has seen occupiers seeking cheaper alternative locations, to the benefit of the Yorkshire area in particular.

South Wales should also seek to gain from this shift in demand, given the attractions of superb communications, available workforce and significantly reduced property costs when compared with Bristol and more traditional distribution areas.

Many inquiries are centred on specific locations, although some of the requirements for larger distribution space tend to be more footloose. This is illustrated by Wilkinson Stores' decision to take an 850,000 sq ft distribution centre at Loc8, Magor in 2000 when the alternative was to locate in Kent.

Local inquiries are usually from retail occupiers for the acquisition of freehold sites - especially for larger requirements of 100,000 sq ft and above - but there's a significant shortage of modern distribution premises of this size in Wales with easy access to the M4.

The majority of this kind of stock is in the Chepstow and Magor areas, serving the first and second Severn Crossings. Here, Tesco, Asda and Wilkinson have total floor space in excess of two million sq ft.

The foremost dedicated distribution park is the former Gwent Europark, recently re-branded as Loc8, being promoted by AWG Developments and Broadhall Hampton.

The park houses distribution centres of 850,000 sq ft for Wilkinson and 640,000 sq ft for Tesco, with further land available able to accommodate a unit of up to 800,000 sq ft.

Occupiers requiring smaller premises to service South Wales will often prefer to be centrally located around Cardiff as evidenced by the recent move of Debenhams and Harvey's to Ocean Park at Cardiff Bay.

Occupiers are also seeking larger sites in close proximity to the M4 in the Cardiff area. Although there are significant tracts of land to the east and west of the M4 corridor in South Wales, the supply of land around the capital is in short supply. Given the significant retail developments due to be undertaken in Newport and Cardiff and the growing presence of many retailers within South Wales, this may lead to extra demand.

However, this opportunity needs to be measured against retail occupiers' continuing preference to centralise distribution operations within a single building.

Historic demand within South Wales has been from third party distribution companies operating on behalf of significant manufacturing occupiers within the area. The manufacturers continue to have major space requirements, but economic uncertainty has led many to rationalise property occupation.

A number have recently disposed of part of their operational premises, with the surplus space generally acquired by investors and leased to occupiers. This trend is set to continue, with further manufacturing closures likely to be announced in the short term.

However, during the past year, over a million square feet of surplus accommodation has been acquired by companies including Eddie Stobart, MFI, Interbrew, Hasbro and John Raymond Transport for storage and distribution. The accommodation tends to be provided on flexible terms by investors, allowing break clauses, and at affordable rents in comparison to new build. South Wales represents a cost-effective alternative to the traditional distribution locations and benefits from superb communications. There continue to be significant requirements within the locality for both new build accommodation and existing accommodation offering economical distribution and storage.